• Burton Malkiel said an early review of his famous book blasted his ideas about passive investing.
• Malkiel’s book, published in 1973, influenced the thinking of many industry leaders who pioneered index funds, including Vanguard’s Jack Bogle.
• Malkiel said there are still not enough investors taking advantage of passive strategies.

Investing is a method of purchasing assets to gain profit in the form of reasonably predictable income like dividends, interest, or rentals, and appreciation over the long term. Investing involves time period for the investment return and predictability of the returns.

Burton Malkiel, author of “A Random Walk Down Wall Street,” said the investment community thought his passive investing idea was “ridiculous,” Burton Malkiel said an early review of his famous book blasted his ideas about passive investing.

Malkiel’s book, published in 1973, influenced the thinking of many industry leaders who pioneered index funds, including Vanguard’s Jack Bogle. Malkiel said there are still not enough investors taking advantage of passive strategies.

The father of passive investing told CNBC on Thursday that the shift toward index funds has vindicated his ideas and that there is still too much active management. According to Malkiel, passive investing has outperformed ninety percent of active investing over a fifteen year period.

Burton Malkiel is an emeritus professor of economics at Princeton University and author of the famous investing book, “A Random Walk Down Wall Street.” He said on CNBC’s “Squawk on the Street” that his idea that most investors should invest passively was originally met with ridicule.

He believes that each investment has a firm anchor of something called intrinsic value. It means that when market prices fall down, a buying or selling opportunity arises. The theory of Investment Value determines the intrinsic value of stock and then use the concept of discounting in the process.

He also believes that discounting basically involves looking at the income backward rather than seeing how much money an investor has in the next year; an investor looks at the money expected in the future and see how much less it is currently worth. Intrinsic value of a stock is equal to the present or discounted value of all its future dividends.

Burton G. Malkiel is the Chemical Bank Chairman’s Professor of Economics Emeritus at Princeton University. He is a former member of the Council of Economic Advisers, dean of the Yale School of Management, and has served on the boards of several major corporations, including Vanguard and Prudential Financial. He is the chief investment officer of Wealthfront.

— Read on www.cnbc.com/2020/01/02/burton-malkiel-says-his-passive-investing-idea-was-called-garbage.html